For an European unemployment insurance – A Commission Report

The best idea for an EMU-level automatic fiscal stabiliser is in my view a scheme where fiscal stimulus is provided to countries of the monetary union based on developments in their short-term unemployment.

Unemployment is an indicator whose big advantages are that it very closely follows developments in the economic cycle, it is easily understandable, and it is easily and promptly measurable.

Basic European unemployment insurance could replace the corresponding part of national schemes. The levels of the contribution and of the benefit should represent a relatively low common denominator between the rules of the various national schemes.

The scheme should clearly focus on cyclical unemployment caused by a drop in aggregate demand, as opposed to structural unemployment caused by skills mismatches, less efficient labour market institutions and the like.

For example, the basic European unemployment benefit would be paid only for the first 6 months of unemployment and the amount would represent 40% of the previous reference wage. These exact parameters would of course need to be discussed, depending on the desired macroeconomic stabilisation effect.

The eligibility conditions should not be too strict, so that also workers in short-term or part-time jobs could contribute and qualify for corresponding support. But in any case there would be clear conditionality in terms of the job-search and training effort.

Each Member State would be free to levy an additional contribution and pay out a higher or longer unemployment benefit on top of this European unemployment insurance. What the European scheme would do is to ensure a fairly basic standard of support during short-term unemployment.

Citizens would directly benefit from EU solidarity at times of hardship, and Member States would be required to upgrade their employment services and labour market institutions to the best EU standards.

The jobseekers would continue to interact with national authorities (public employment services). However, every month these national authorities would send to the European fund the basic contribution from all their employed workers.

Likewise, every month the European fund would pay to the national authorities an amount corresponding to the sum of all the basic European unemployment benefit payments to be made that month in the country.

In principle, each country would therefore make every month an overall contribution and receive an overall payment from the European scheme. In practice, these two could of course be offset and only the net balance would be paid.

The overall volume of such a basic European unemployment insurance scheme would be around 1% of GDP, mainly depending on the exact parameters such as duration and level of the benefit or the eligibility conditions. Of course, the net transfers from or into any particular country would be smaller, because drawdowns would be offset by contributions and vice versa.

Chosen excerpts by Job Market Monitor. Read the whole story at  EUROPA – COMMUNIQUES DE PRESSE – Communiqué de presse – Basic European unemployment insurance: Countering divergences within the Economic and Monetary Union.

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